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IMF cuts UK growth forecast for 2023 as it warns of global recession

Union Jack and EU flags. The IMF downgraded UK growth expectations
The IMF said the UK will lag behind other major economies next year. Photo: Isabel Infantes/EMPICS Entertainment.

The International Monetary Fund (IMF) has slashed its growth forecast for the UK next year, with expectations that it will lag behind other major economies.

UK GDP is now only expected to rise by 0.5% in 2023, the weakest growth in the G7. This is down from April’s forecast of 1.2%, and 2.3% in January.

However, Britain is forecast to see a growth of 3.2% this year, above those of its biggest competitors including both France and Germany.

It comes as the IMF again downgraded its forecast for global growth this year in its latest world economic outlook, blaming worse-than-expected inflation for an overall "gloomy and more uncertain" report.

Read more: IMF slashes global growth forecast again citing 'gloomy' outlook

The Washington-based group also pointed to the world’s recovery from the coronavirus pandemic, and Russia’s invasion of Ukraine, the latter of which could lead to a sudden stop of European gas flows from Russia.

Other warnings were renewed COVID-19 outbreaks and lockdowns which might further suppress China’s growth, as well as tighter global financial conditions which could induce a surge in debt distress in emerging markets and developing economies.

The IMF now expects the global economy to grow by only 3.2% in 2022, a downgrade from the previous 3.6% projection three months ago. In April, the IMF cut its growth expectations for 2022 from 4.4% to 3.6%.

"The global economy, still reeling from the pandemic and Russia's invasion of Ukraine, is facing an increasingly gloomy and uncertain outlook," said Pierre-Olivier Gourinchas, economic counsellor and the director of research at the IMF.

“The outlook has darkened significantly since April. The world may soon be teetering on the edge of a global recession, only two years after the last one.

“Higher-than-expected inflation, especially in the United States and major European economies, is triggering a tightening of global financial conditions. China’s slowdown has been worse than anticipated amid Covid-19 outbreaks and lockdowns, and there have been further negative spillovers from the war in Ukraine.”

Read more: FTSE retreats as IMF slashes global growth forecast

It warned that growth was stalling in the world’s three largest economies; the United States, China, and the euro area.

Among major economies, the United States saw the sharpest downward revision compared to any country this year, and is now expected to grow just 2.3% this year, down from 3.7%

China’s growth forecast was cut to 3.3% from 4.4% due to the crisis in its property sector amid COVID lockdowns, while the eurozone’s growth forecast for 2022 was cut to 2.6%, from 2.8%.

Russia is also forecast to shrink 6% this year, and 3.5% in 2023, while Ukraine is expected to contract by as much as 45%.

It also hiked its inflation forecast amid an ongoing cost of living crisis, which has seen food, fuel and energy prices rise.

Inflation this year is expected to rise to 6.6% in advanced economies, an upward revision of 0.9 percentage points, and jump to 9.5% in developing economies, 0.8 percentage points higher than before.

Read more: UK's poorest households forced to cut spending on food as incomes decline

Gourinchas added: “Tighter monetary policy will inevitably have real economic costs, but delaying it will only exacerbate the hardship. Central banks that have started tightening should stay the course until inflation is tamed.”

He said the bond-buying tool unveiled by the European Central Bank (ECB) last week could potentially have a “very large soothing effect” on markets, but that it would be a “delicate exercise” to pull off.

Watch: How does inflation affect interest rates?